Potash (POT) Acquisition of K+S Might Raise Anti-Trust Issues - TD Securities

TD Securities maintained a Hold rating on Potash Corp. (NYSE: POT) with a price target of $35. Yesterday it was learned that Potash is in talks with Germany's K+S Group. Analyst Greg Barnes said a deal would be accretive at $45 per share for K+S, but he added that implications for Canpotex and anti-trust issues are unclear.

"An acquisition of K+S would provide PotashCorp with control over the new supply from the Legacy project. K+S is constructing the Legacy potash project in Saskatchewan. The Legacy project is a $4.1- billion greenfield potash project that is expected to ramp up in mid- 2016. Initial capacity is planned at 2 Mtpa, with a potential expansion to 2.9 Mtpa by 2023 and 4.0 Mtpa by 2035. Capex was ~55% complete as at the end of Q1/15. Mine site cash costs are forecast at C$90/tonne," said Barnes.

"On consensus estimates and applying a $45/share offer price for K+S (41% premium), we estimate that a 50/50 cash and equity transaction would be 16–19% accretive to 2016/2017 EBITDA/share before considering any potential synergies," continued the analyst.

Barnes added, "How production from the new Legacy mine would be distributed could create complications. In our view, it is unlikely that a separate international distribution network would be desirable, but how Legacy production could be folded into the existing Canpotex agreement is unclear. In addition, regulators could raise anti-trust issues given a potential ~30% global market share in potash including Legacy."

For an analyst ratings summary and ratings history on Potash Corp. click here. For more ratings news on Potash Corp. click here.

Shares of Potash Corp. closed at $31.89 yesterday.

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